THE government could be pressured into a by-election, with Labor MP Robert McClelland planning to quit his Sydney seat within weeks.

The former federal attorney-general is likely to win a job with the NSW Industrial Relations Commission. Prime Minister Julia Gillard is expected to argue the resignation would be too close to the September 14 election date for a by-election to be necessary, further fuelling speculation the poll decision was simply a strategy to defend that position.

Labor holds the southern Sydney seat by 6.9 per cent but the party would almost certainly lose a by-election.

While the minority government would still have the numbers in parliament to retain power, losing another MP - even without a by-election - would cause a "psychological injury" - as one Labor MP described it.

That would further destabilise Ms Gillard's leadership and again open the door for Kevin Rudd to attempt another tilt for the top job.

State government sources have confirmed a decision on Mr McClelland's job application is as little as one month to two months away.

He is understood to be prepared to jump out of parliament immediately to take on the role.

Yesterday Mr McClelland, who was hosted at a farewell dinner by MPs on Wednesday night in Canberra, did not deny that he planned to quit his seat if he won the position.

"I can't confirm or comment on any position that I have applied for," he said.

"I don't think that's appropriate, and it's speculative as to what action I might take in the event of me being offered such a position."

The state government confirmed it would make an announcement on three industrial relations commissioners' positions "shortly".

A spokesman for Ms Gillard denied yesterday she had any knowledge of Mr McClelland's decision when she announced the election date - a day after Mr McClelland announced he was retiring from politics at the next election.

Mr McClelland's name is expected to be on the shortlist recommended by the interview panel featuring public service department heads to go to Cabinet. It will then be up to Premier Barry O'Farrell and the Cabinet to select him.

It would be difficult for Mr O'Farrell to refuse Mr McClelland the job, given he has extensive industrial law experience and the fact he has been federal attorney-general, but there is likely to be some cabinet opposition to giving a Labor MP a job.

Mr McClelland was dumped from the ministry for supporting Mr Rudd in his leadership challenge last year.

The farewell dinner for Mr McClelland sparked leadership speculation, with veteran minister Simon Crean joining several Rudd supporters at the dinner. Mr Crean's attendance came just a few weeks after he softened a previously ferocious stance against Mr Rudd.

Mr Crean played down his presence with a spokesman saying: "Simon's view is that it was a farewell dinner for Robert McClelland, who has obviously been in parliament with him for years."

Hunter MP Joel Fitzgibbon organised the "farewell" dinner for Mr McClelland, who chose the guests including NSW Right colleagues such as Rudd supporter and minister Chris Bowen, Ed Husic and Mike Kelly.

It is understood the relationship between Mr McClelland and Mr Crean had been fractured until recently over the Rudd challenge.

Mr Rudd, Mr Crean and Mr Fitzgibbon made speeches at the dinner.

"We said a few nice things about Rob. There were some funny stories about when Rob and I played parliamentary rugby. We had fun, as friends often do when they go out to dinner," Mr Fitzgibbon said.

Leadership issues were not discussed, MPs said.

There has been speculation former premier Morris Iemma will run for Barton but it's understood Gillard supporter Tony Burke is pushing his former chief of staff Kirsten Andrews as the candidate instead, amid concerns the ICAC scandal involving former state Labor ministers may hurt Mr Iemma's candidacy.

A spokeswoman for state Treasurer Mike Baird said appointments to the Industrial Relations Commission would be "based on merit and ensuring the candidate has the right experience and skills".

THE government could be pressured into a by-election, with Labor MP Robert McClelland planning to quit his Sydney seat within weeks.

The former federal attorney-general is likely to win a job with the NSW Industrial Relations Commission. Prime Minister Julia Gillard is expected to argue the resignation would be too close to the September 14 election date for a by-election to be necessary, further fuelling speculation the poll decision was simply a strategy to defend that position.

Labor holds the southern Sydney seat by 6.9 per cent but the party would almost certainly lose a by-election.

While the minority government would still have the numbers in parliament to retain power, losing another MP - even without a by-election - would cause a "psychological injury" - as one Labor MP described it.

That would further destabilise Ms Gillard's leadership and again open the door for Kevin Rudd to attempt another tilt for the top job.

State government sources have confirmed a decision on Mr McClelland's job application is as little as one month to two months away.

He is understood to be prepared to jump out of parliament immediately to take on the role.

Yesterday Mr McClelland, who was hosted at a farewell dinner by MPs on Wednesday night in Canberra, did not deny that he planned to quit his seat if he won the position.

"I can't confirm or comment on any position that I have applied for," he said.

"I don't think that's appropriate, and it's speculative as to what action I might take in the event of me being offered such a position."

The state government confirmed it would make an announcement on three industrial relations commissioners' positions "shortly".

A spokesman for Ms Gillard denied yesterday she had any knowledge of Mr McClelland's decision when she announced the election date - a day after Mr McClelland announced he was retiring from politics at the next election.

Mr McClelland's name is expected to be on the shortlist recommended by the interview panel featuring public service department heads to go to Cabinet. It will then be up to Premier Barry O'Farrell and the Cabinet to select him.

It would be difficult for Mr O'Farrell to refuse Mr McClelland the job, given he has extensive industrial law experience and the fact he has been federal attorney-general, but there is likely to be some cabinet opposition to giving a Labor MP a job.

Mr McClelland was dumped from the ministry for supporting Mr Rudd in his leadership challenge last year.

The farewell dinner for Mr McClelland sparked leadership speculation, with veteran minister Simon Crean joining several Rudd supporters at the dinner. Mr Crean's attendance came just a few weeks after he softened a previously ferocious stance against Mr Rudd.

Mr Crean played down his presence with a spokesman saying: "Simon's view is that it was a farewell dinner for Robert McClelland, who has obviously been in parliament with him for years."

Hunter MP Joel Fitzgibbon organised the "farewell" dinner for Mr McClelland, who chose the guests including NSW Right colleagues such as Rudd supporter and minister Chris Bowen, Ed Husic and Mike Kelly.

It is understood the relationship between Mr McClelland and Mr Crean had been fractured until recently over the Rudd challenge.

Mr Rudd, Mr Crean and Mr Fitzgibbon made speeches at the dinner.

"We said a few nice things about Rob. There were some funny stories about when Rob and I played parliamentary rugby. We had fun, as friends often do when they go out to dinner," Mr Fitzgibbon said.

Leadership issues were not discussed, MPs said.

There has been speculation former premier Morris Iemma will run for Barton but it's understood Gillard supporter Tony Burke is pushing his former chief of staff Kirsten Andrews as the candidate instead, amid concerns the ICAC scandal involving former state Labor ministers may hurt Mr Iemma's candidacy.

A spokeswoman for state Treasurer Mike Baird said appointments to the Industrial Relations Commission would be "based on merit and ensuring the candidate has the right experience and skills".